The Rise Of Litecoin

LitecoinIt’s looking like March may be a huge month for the digital currency Litecoin. WIth a price of around $0.65 the currency is starting to approach the $1 mark that many of it’s users feel it should be valued at. As of this writing the Litecoin network hash rate is at an all time high. So what is fueling this drive in the value of Litecoin relative to Bitcoin and the US dollar?

Litecoin Background

Litecoin was launched in October of 2011. The original concept behind Litecoin was that it would be a CPU mineable only coin. This was of course in response to the prevalence of GPU mining in Bitcoin at the time. Litecoin uses a different encryption algorithm, referred to as scrypt to accomplish this. However, it was eventually discovered that GPU mining was possible on Litecoin. Though the performance gap between CPU mining and GPU mining was much smaller than Bitcoins, GPU mining has mostly won out.

As for price, Litecoin has spent much of the last 6 months between $0.05 and $0.10 on the crypto currency exchange While many in the Litecoin community have felt its price should be much higher it has, until recently, been eclipsed by big news out of Bitcoin. Recent events related to Litecoin and crypto currencies in general are now having quite an impact on its price. Today Litecoin is the second largest crypto currency with a market cap just under 11 million USD.

Specialized Hardware

The current rise in the price of Litecoin has long been expected by Litecoin enthusiasts. Many have speculated that with the rise in difficulty for Bitcoin would come a transition of more GPU miners to Litecoin, and they seem to be right. Litecoin’s overall hash rate has risen dramatically in the last week. The next difficulty adjustment, expected to occur later today, will see an increase of roughly 50% over the current difficulty. This is at least in part driven by the appearance of ASICs on the Bitcoin network.

What’s more is that there is said to be a FPGA in the works for Litecoin. If true this would be a huge accomplishment for the young coin. Litecoin could then join other crypto currencies in having it’s own specialized mining hardware. However, some are critical of specialized hardware for Litecoin as the coin was originally intended to be a CPU only coin that could be mined by anyone and everyone. At any rate the emergence of specialized hardware could be seen as a sign of growth in Litecoin.

Merchant Acceptance

With all the attention Litecoin has been getting as of late it’s no surprise that more merchants have announced support for the crypto currency. Earlier today online retail site officially announced that they would be accepting Litecoin as a form of payment. The announcement by Hashr is of particular importance as it adds another retailer of physical goods to the list of Litecoin merchants. Litecoin has already seen acceptance by a number of other online merchants for virtual goods and services. This bitcointalk thread has a pretty good list of Litecoin accepting sites.

An Alternate Currency

Earlier this week Bitcoin faced a potentially huge problem as a software glitch caused a divergence in the Bitcoin blockchain. The event was handled exceedingly well by the Bitcoin developers and community but may be in part fueling a rush to diversify into multiple crypto-currencies. Litecoin is poised particularly well for this as it has the second largest market capitalization and a growing user base.

What’s more is that Litecoin is more of an alternate to Bitcoin. Litecoin’s design and reliance on a scrypt encryption algorithm means that the specialized hardware developed for Bitcoin is not applicable to Litecoin. In this way Litecoin adds a sort of robustness to the crypto currency market. Thinking in terms of the crypto currency market as a whole, having multiple currencies with different strengths and weaknesses will make the market more resilient to outsider attacks. In this way Litecoin helps add a certain degree of security to crypto currencies.

Potential Growing Pains

While I certainly see the recent growth and news in Litecoin as a positive I feel it prudent to point out that Litecoin may experience some volatility in the coming weeks and months. Litecoin is still much younger than Bitcoin, having been founded just one and a half years ago. However, the relatively low difficulty of Litecoin for much of the last year combined with what had been a smaller mining community means that some early miners may hold large concentrations of Litecoin. This is not unlike Bitcoin’s early days. If we’re to expect similar trends to arise, then Litecoin may see some selloffs of large amounts of Litecoin. If this were to happen, Litecoin is likely to see a considerable amount of short term volatility followed up by an eventual return to an equilibrium price.

I hope this has helped give a bit of background on Litecoin’s recent growth. If you’re interested in Litecoin you can check out our Getting Started With Litecoin article or our Absolute Beginner’s Guide To Litecoin Mining. If you have specific questions regarding this article, or tips for a future story feel free to contact me at CryptoJunky at zoho dot com or by Bitmessage.